Program for alternative funding of employee and retiree benefits

ABSTRACT

An insurance program for funding benefits by maintaining assets in the insurance program that includes an employer or employee owned trust account and at least one life insurance contract or non-cancelable accident and health insurance contract obtained directly or indirectly from a captive insurance company. The life insurance contract or non-cancelable accident and health insurance contract is purchased with assets from the trust account and the captive insurance company is a least partially owned by the employer. When paying or reimbursing benefits, the employer or the trust may pay the benefit and if the employer pays the benefit, the trust may reimburse the employer.

CROSS-REFERENCE TO RELATED APPLICATION

This Application is a Continuation-in-Part of U.S. application Ser. No.10/995,325, filed on Nov. 24, 2004. U.S. application Ser. No.10/995,325, in its entirety, is herein incorporated by reference.

BACKGROUND OF THE INVENTION

1. Field of the Invention

The present invention relates generally to facilitating and/or providingbenefits to employees and retirees. More specifically, the presentinvention relates to a computer implemented system and method forconfiguring, optimizing, managing and tracking alternative funding ofemployee and retiree benefits and benefit plans.

2. Description of Related Art

Conventionally, employers have provided benefits to employees andretirees and have paid for these benefits using employer's funds. Morerecently, benefits, including medical costs, have become very expensiveand as a result, employers have scaled their benefit offerings and, insome cases, insisted that the employees pay a portion of the cost forthese benefits. Some corporations have also required that employees relyentirely on self funded retirement.

Additionally, commonly accepted accounting practices have essentiallyforced employers to reflect these benefits to employees and retirees asliabilities on corporate financial statements.

This trend has put a substantial strain on employers, on employees andtheir families, and on retirees and their families that were promisedbenefits after retirement. Employers appear to carry costly liabilitiesand employees are having to pay more for fewer services. Accordingly, asystem is needed to assist employers in controlling the cost of theirprograms and to ensure that employers are financially able to providethe maximum affordable benefits to employees and retirees and that theemployees and retirees get an appropriate level of benefits.

BRIEF SUMMARY OF THE INVENTION

In one embodiment, the present invention provides a method for fundingbenefits by maintaining assets in an investment program comprising, anemployer or employee owned trust account and at least one life insurancecontract or non-cancelable accident and health insurance contractobtained directly or indirectly from a captive insurance company. Thelife insurance contract or non-cancelable accident and health insurancecontract is purchased with assets from the trust account and the captiveinsurance company is a least partially owned by the employer. Whenpaying or reimbursing benefits, the employer or the trust may pay thebenefit and if the employer pays the benefit, the trust may reimbursethe employer.

In another embodiment, the present invention allows the trust or thecaptive insurance company to invest its assets in commercially availablevehicles to generate additional assets, and in certain embodiments theinvestment may be in the employer's own securities including short termcommercial paper.

In yet another embodiment, the present invention provides a method offunding benefits where the captive insurance company is wholly orpartially owned by the employer, is a rent-a-captive, a protective cellcaptive, or any other form of a captive insurance company as defined andauthorized by the respective domicile of the captive insurance company.

In yet another embodiment, the present invention provides benefitsincluding, for example, health care benefits, retirement benefits,executive compensation, and/or life insurance. These benefits may beprovided to employees and/or retirees.

In yet another embodiment, the non-cancelable accident and healthinsurance contract is a health insurance contract and the insurancecompany pays claims on behalf of the insured to the trust.

In yet another embodiment, the present invention utilizes a trustincluding, for example, a Voluntary Employee Beneficiary Association(VEBA) Trust or a Rabbi Trust as the beneficiary and names at least oneemployee receiving benefits from the employer as the insured person onthe life insurance contract.

BRIEF DESCRIPTION OF THE DRAWINGS

Additional, features, and advantages of the various embodiments of thepresent invention will become apparent from the following detaileddescription of embodiments of the invention in conjunction with theaccompanying drawings where like reference numerals indicate likefeatures, in which:

FIG. 1 is a schematic drawing of a funding program for employee andretiree benefits in accordance with an embodiment of the presentinvention;

FIG. 2 is a schematic drawing of a funding program for employee andretiree benefits in accordance with an embodiment of the presentinvention;

FIG. 3 is a flow chart illustrating the operation of a funding programin accordance with an embodiment of the present invention;

FIG. 4 is a flow chart illustrating how benefits may be paid when anemployee/retiree makes a claim in accordance with an embodiment of thepresent invention;

FIG. 5 is a flow chart illustrating how benefits or claims on behalf ofan insured are paid in accordance with an embodiment of the presentinvention; and

FIG. 6 is a flow chart of a computer system for implementing a fundingprogram in accordance with an embodiment of the present invention.

DETAILED DESCRIPTION OF EMBODIMENTS

FIG. 1 is a schematic drawing of an alternative funding program foremployee and retiree benefits in accordance with an embodiment of thepresent invention. As illustrated in FIG. 1, the funding programincludes an employer 120 (or union or association in some embodiments),a captive insurance company 130, a Voluntary Employee BeneficiaryAssociation (VEBA) trust 140 and a third party insurance company 150.

FIG. 3 is a flow chart illustrating the operation of a funding programin accordance with an embodiment of the present invention. As bestillustrated in FIG. 3, but with reference to FIG. 1, the employer 120establishes a VEBA trust 140 in a first step 310. Next, in step 320, theemployer 120 funds the VEBA trust 140. With the funding 12, the VEBAtrust 140, as indicated by step 330, purchases Trust Owned LifeInsurance (TOLI) policies and/or non-cancelable accident and healthinsurance (hereinafter collectively referred to as “policies”) from athird party insurance company 150. The third party life insurancecompany 150 reinsures the policies with the employer's captive insurancecompany 130. Accordingly, as illustrated by step 340, the captiveinsurance company 130 reinsures and assumes some or all of the riskassumed by the third party insurance company 150.

As illustrated in the embodiment of FIG. 1, the employer 120 and thecaptive insurance company 130 have a subsidiary relationship 11.Specifically, in some embodiments, the captive insurance company 130 maybe a wholly owned subsidiary of the employer. Alternatively, in otherembodiments, the captive insurance company 130 may be a partially ownedsubsidiary of the employer 120. In fact, there are several arrangementsbetween the captive insurance company 130 and the employer 120 thatwould provide similar benefits as a subsidiary relationship 11. As wouldbe readily understood by a person of ordinary skill in the art, a groupcaptive insurance company (i.e., a captive insurance company that isshared between a group of employers 120) may provide similar advantageswhile reducing the cost attributed to each employer. These types ofcaptive insurance companies may be referred to as risk retention groupsor association captives. Alternatively, other forms of captive insurancecompanies 130 may include, for example, agency captives, branch captivesand rent-a-captives.

In general, however, the captive insurance company 130 is defined by thedomicile of the captive insurance company. For example, in embodiments,the captive insurance company may be domiciled in Vermont (generally a“captive friendly” state). According to Title 8, Section 6001 of theVermont Statute definition of a captive insurance company is any purecaptive insurance company, association captive insurance company,sponsored captive insurance company, industrial insured captiveinsurance company, or risk retention group formed or licensed under theprovisions of this chapter. For purposes of this chapter, a branchcaptive insurance company shall be a pure captive insurance company withrespect to operations in this state, unless otherwise permitted by thecommissioner. The section further defines, for example, a pure captiveinsurance company as any company that insures risks of its parent andaffiliated companies or controlled unaffiliated business. Thesedefinitions are exemplary of statutes that may exist in other states aswell. Of course, as would be generally understood by a person ofordinary skill in the art, many variations of the definition may existbased on for example, the domicile of the captive insurance company 130.In other embodiments, the term “captive” is used generally to describean insurance company that insures the risk of its owners who are not inthe business of insurance.

As would be understood by a person of ordinary skill in the art, each ofthese captive insurance company examples have their respective benefitsand should be selected to meet an employer's needs. Additionally, thepresent invention should not be limited to the specific types ofcaptives discussed above, any type or form of captive insurance companywould fall within the scope of the present invention.

In the embodiment illustrated in FIG. 1, the employer 120 and the VEBAtrust 140 exchange funds. The funding 12 can occur in numerous manners,for example, the funding 12 may be an initial funding, a periodicfunding and/or a non-periodic funding. The funding provides the VEBAtrust 140 with assets/money. Additionally, as shown in the embodiment ofFIG. 1, the VEBA trust 140 reimburses 15 the employer 120. Specifically,in the illustrated embodiment, the employees/retirees 110 may make aclaim to the employer which may be reimbursed by the VEBA trust 140.Examples of claims may include, for example, reimbursement for medicalexpenses, death benefit, etc.

FIG. 4 is a flow chart illustrating one procedure by which benefits maybe paid when an employee/retiree makes a claim in accordance with anembodiment of the present invention. Upon receipt of the claim, as shownby step 410, the employer 120 will pay the claim 10, illustrated by step420. After paying the claim 10, in step 430, the VEBA trust 140 mayreimburse the employer 120 for at least a portion of the claim 10.Additionally, in embodiments of the present invention wherenon-cancelable accident and health insurance, and more specifically, ahealth insurance contract is used, the claim may trigger a payment fromthe policy for the claim on behalf of the insured.

As would be understood by a person skilled in the art, variousmodifications of this embodiment may be possible. For example, the claimmay be paid directly by the VEBA trust 140 or it might not be theemployee/retiree 110 making a request, it may be a third party such as ahospital or a creditor of the employee/retiree 110. Additionally, arequest may not even be required in some embodiments. Specifically, theemployer 120 or VEBA trust 140 may have some other arrangement in placeto pay for these benefits, for example, by paying a third party tohandle such claims.

Additionally, although the above embodiment describes a VEBA trust 140,it should be understood that any trust may be utilized within the scopeof this invention. The VEBA trust is established under Title 26 of theU.S. Code and there are several benefits of VEBA trusts that make itsuse beneficial. For example, some permissible benefits that a trust(including, for example, a VEBA) may pay for include life, health,accident, and other benefits to participants. The other benefits,according to Treasury regulations, may include vacation benefits,subsidized recreational activities (e.g., athletic leagues), child carefacilities, job readjustment allowances and income maintenance paymentsin case of economic dislocation, temporary living expense loans andgrants in times of disaster, supplemental unemployment compensation,severance benefits, education or training benefits, supplementalexecutive retirement programs (SERP), non-qualified deferredcompensation, and personal legal service benefits. Additionally, thereare tax advantages that an employer may use to their benefit by using aVEBA trust. Of course, these benefits would be apparent to a personskilled in the art. Other trusts may also be used. For example, a Rabbitrust or Grantor trust are other examples of trusts that may bebeneficial in the context of the present invention. Other trusts thatmay be beneficial will depend on the employer's specific situation.Additionally, it should be understood by a person skilled in the artthat certain trusts may be owned by employees of the employer instead ofthe employer directly.

As previously mentioned, the VEBA trust 140 may purchase life insurancecontracts and/or non-cancelable accident and health insurance contractswith the funds that it receives. As illustrated in FIG. 1, the VEBAtrust 140 pays premiums 13 to a third party insurance company 150. Thethird party insurance company 150 issues an insurance policy where anemployee, former employee, or retiree, or a group of such employees,former employees, or retirees (or any combination thereof) is theinsured and the VEBA trust 140 is the beneficiary of the life insurancecontract. Accordingly, when the insured person dies or makes a claim,the third party insurance company 150 pays the beneficiary proceeds orclaim proceeds on behalf of the insured respectively, 14 to the VEBAtrust 140.

In accordance with embodiments of the present invention, the VEBA trust140 may acquire any combination of policies on any group of persons. Ofcourse, as would be understood by a person of ordinary skill in the art,there are legal limits for insurance policies on whom and how much aninsurance policy can be for. For example, many government regulationsrequire that the beneficiary have an “insurable interest” in theperson(s) named on the policy. Accordingly, it would be difficult, butnot out of the scope of the present invention, to select arbitrarypersons to name on life insurance policies.

Additionally, there are often tax advantages to investing in lifeinsurance policies and/or non-cancelable accident and health insurancepolicies. Accordingly, as would be readily understood by a person ofordinary skill in the art, it may, in certain embodiments, be beneficialto invest a maximum acceptable amount of funding from the VEBA trust 140to pay premiums 13 on the policies. For example, in some embodiments,the health insurance policy may be treated as life insurance for taxpurposes. Although, in some embodiments, the VEBA trust 140 assets mayalso be invested 18 in other investment vehicles 160. More about thistype of investment is discussed below.

The policies that are issued by the third party insurance company 150are then reinsured 16 by the employer's captive insurance company 130.By reinsuring 16 the policies, the employer's captive insurance company130 assumes the risk of the policies (i.e., the employer's captiveinsurance company assumes liability for the payment of at least aportion of the beneficiary and claim proceeds 14) from the third partyinsurance company 150 in exchange for a premium paid to the employer'scaptive insurance company 130. Accordingly, the third party insurancecompany is sometimes called a fronting company since the third partyinsurance company may only be involved in administering the policy.Additionally, in some embodiments, the third party insurance company mayalso be secondarily liable for the beneficiary proceeds.

In an embodiment of the present invention, the employer's captiveinsurance company 130 assumes the entire risk from the third partyinsurance company 150; in other embodiments, the employer's captiveinsurance company may only assume a portion of the risk. If the entirerisk is assumed, then the third party insurance company is a frontingcompany. The premiums 13 paid by the VEBA trust 140 may be forwarded tothe employer's captive insurance company 130, often less a fee retainedby the third party insurance company 150 for their initial and ongoingservices.

In some embodiments, the third party insurance company 150 may not benecessary and the employer's captive insurance company 130 may simplyassume both roles. Specifically, as illustrated in FIG. 2, which is aschematic drawing of another embodiment of a funding program inaccordance with an embodiment of the present invention, the reinsurancemay not be necessary if the captive insurance company 130 is able toassume both rolls. However, the third party insurance company isbeneficial to the employer, especially if the employer hasemployees/retirees 110 in several states. For example, the employer'scaptive insurance company may not be as large as a traditionalcommercial insurance provider. The limited size of the captive insurancecompany, may, for example, prevent it from being able to write lifeinsurance contracts in all of the necessary states or issue adequatehealth insurance policies. Accordingly, a well established third partyinsurance company 150 may provide this function, generally for a smalladministrative fee. In general, the various functions of an insurancecompany, including administrative functions, paying benefits, andcollecting premiums, may be distributed between the third partyinsurance company and the captive insurance company in any manner thatis acceptable for satisfying the employer's needs.

Additionally, as discussed above, FIG. 2 also illustrates an embodimentof a funding program where the VEBA trust 140 pays benefits directly.

FIG. 5 is a flow chart illustrating how benefits or claims are paid inaccordance with an embodiment of the present invention. As previouslymentioned, if the employer's captive insurance company 130, assumes anyportion of the risk, it may be responsible for paying the beneficiary orclaim proceeds 14 discussed above. Accordingly, FIG. 5 is one embodimentof how the beneficiary proceeds 14 may reach the VEBA trust 140. Whenthe third party insurance company 150 is notified that benefits orclaims on behalf of the insured need to be paid, at step 510, the thirdparty insurance company 150 subsequently pays the beneficiary or claimproceeds 14 to the VEBA trust 140 at step 520. The captive insurancecompany 130 is notified and reimburses the third party insurance company150 for at least a portion of the paid beneficiary proceeds 14, at 530.

As would be readily understood by a person skilled in the art, othervariations of this process may also be utilized. For example, inembodiments, the employer's captive insurance company 130 may pay thebeneficiary proceeds or claims 14 directly to the VEBA trust 140. Thismay provide additional benefits to the employer depending on thespecific situation.

As discussed above, premiums may be paid by the third party insurancecompany 150 to the employer's captive insurance company 130 in exchangefor the employer's captive insurance company 130 assuming the risk.Depending on various laws that may exist related to how the employer'scaptive insurance company utilizes the funds that it receives, theemployer's captive insurance company 130 invests 17 its funding intoinvestment vehicles to generate additional funds.

In one embodiment, for example, a life insurance contract may beconfigured to maximize the cash value of the contract. The cash value ofa life insurance contract, as would be readily understood by a person orordinary skill in the art, is the current value of the assets thatsupport the benefits under the life insurance contact. Generally, andwithin legal limits and for a given level of death benefits, this valueis maximized by paying a premium that is equal to the required amountfor a fixed value policy plus some additional amount that accumulatesover time to increase a cash value. For example, if a $1 million policyhas mortality and administrative costs of $400 per year, a policyholder, in this case the VEBA trust 140, may pay $1000 per year insteadof the minimum $400. In this case, an additional $600 per year isinvested at a predetermined or variable rate of return. Over time theaccumulation of the $600 annual payments increases the cash value of thelife insurance policy. In some cases, the return on the cash value mayeventually be enough to pay the $400 minimum such that the insurancepolicy is kept in force without additional premium payments.Additionally, in certain embodiments, the policy value may also increasesuch that when the beneficiary proceeds 14 are paid, the proceeds maytotal, for example, $1.5 million.

In another embodiment, for example, a non-cancelable accident or healthinsurance contract may be configured to accumulate cash value in thecontract. The cash value of such a contract, as would be readilyunderstood by a person or ordinary skill in the art, is the currentvalue of the assets that support the anticipated claims under thecontact. For example, if a policy has anticipated claims andadministrative costs of $400 per year, a policy holder, in this case theVEBA trust 140, may pay $1000 per year instead of the minimum $400. Inthis case, an additional $600 per year is invested at a predetermined orvariable rate of return. Over time the accumulation of the $600 annualpayments increases the reserves of the policy. In some cases, the returnon the reserves may eventually be enough to pay the $400 minimum suchthat the annual claims and administrative expenses are paid frominvestment income generated by the reserves without the need foradditional premiums.

The employer's captive insurance company 130, uses the additional funds,over its minimum premium and in some embodiments an additionaladministrative fee, and invests this funding in investment vehicles 160.

Several investment vehicles may be utilized by either the employer'scaptive insurance company 130 and or the VEBA trust 140. One suchinvestment vehicle is an investment in the employer's own securitiesincluding the employer's short term commercial paper. The short termcommercial paper provides the necessary return that a captive insurancecompany or trust may seek while maintaining the liquidity of the assets.Liquidity, as should be readily understood by a person of ordinary skillin the art, may be important since both the captive insurance companyand the VEBA trust may need to make fairly large payments without muchnotice.

As would be understood by a person skilled in the art, otherconventional investment vehicles 160 either alone or in combination withshort term commercial paper or any other investment vehicles 160 wouldalso be acceptable. Examples of some other investment vehicles mayinclude, for example, commercial stocks, bonds, commodities, realestate, interest bearing accounts, etc.

The principles and features of the present invention may also beimplemented in a computer readable medium. For example, a computer canbe programmed to establish a funding system in accordance with theprinciples described above that meets an individual employer's needs.

In one embodiment, the computer program would be programmed to includeinformation on the laws regarding the VEBA trust 140, the third partyinsurance company 150, and the employer's captive insurance company 130.The incorporated laws may include, for example, the required legalstructure of each entity, the maximum and minimum funding required foreach entity, the types of activities which may be regulated for eachentity, and the tax advantages and disadvantages of using each entity.Of course, as would be understood by a person of ordinary skill in theart, other information that may be relevant may also be included. Theprogram would accept, as inputs, several key pieces of informationregarding the employer 120. For example, this information, in oneembodiment may include, the legal structure of the employer 120, thebenefits liability of the employer 120, the assets of the employer 120,and the projected future liabilities and assets of the employer 120.Based on these inputs and the information stored within the program, theprogram may be able to determine what structure the funding systemshould embody, how much funding should be provided to the trust, whetherlife insurance or non-cancelable accident and health insurance should bepurchased, what type of trust should be utilized, whether a third partyinsurance company 150 should be utilized, which third party insurancecompany 150 should be utilized, what type of captive insurance company130 should be utilized, and what type or types of investment vehiclesshould be utilized.

Of course, the above computer implemented method is merely an embodimentof the present invention, and it should be understood that variousmodifications, additions, and deletions are contemplated depending onthe particular situation.

In additional embodiments, the computer implemented method may also beimplemented to optimize certain aspects of the present invention. Theabove program described a computer implemented method that assisted anemployer in determining the most advantageous arrangement for fundingbenefits. Once the arrangement is determined, it may be beneficial foremployers to optimize the arrangement to their specific needs. In oneembodiment, the software may be utilized for any combination ofadministration of the funding system, optimization of the fundingsystem, performance tracking of the funding system, or managing of thefunding system.

For example, the software may be configured to maximize the cash valueof the life insurance policies while allowing a user to track the assetsand liabilities of the system and determine future projections for thestate of the system. In another embodiment, the software may allow auser to optimize the amount of funds that are paid to the trust tooptimize the tax benefits of the funding system. In another embodiment,the software may be able to determine the optimum investment strategyfor the funds provided to the trust or to the captive insurance company.In another embodiment, the software may be able to forecast claim to bepaid under a non-cancelable accident and health insurance contract.

FIG. 6 is a flow chart of a computer system relating to or forimplementing a funding program in accordance with an embodiment of thepresent invention. The computer system of FIG. 6 includes user inputs610, a computer 620, and a display 680. In this embodiment, the computer620 includes 5 modules; a configuration module 660, an optimizationmodule 640, a management module 630, an administrative module 650, andan accounting module 670. The computer can be any electronic devicecapable of performing the desired function. Likewise, the modulesdescribed can be discrete or integrated and can be implemented insoftware or hardware. As described above, the user inputs 610 mayinclude a number of relevant parameters including, for example,information regarding the corporate structure, the corporate assets, andthe corporate liabilities. These user inputs may be input into thecomputer 620 via a distributor 625. The distributor 625, gathers theinformation and forwards it to at least one of the modules. Often, thedistributor 625 may also convert the data into a form that is moreeasily interpreted by the modules. The modules each contain parametersand calculating means for using the user inputs 610, where necessary, toobtain the relevant outputs. Additionally, in some embodiments, themodules may be able to communicate with each other. As discussed above,and in more detail below, these parameters and calculating means can beany appropriate information. For example, with respect to the managementmodule 630, the user inputs 610, information from the configurationmodule 660, information from the optimization module 640 and theparameters specific to the management module, may be used to allow auser to determine several management parameters. Based on, for example,the configuration module 660, the management module may track assets inthe trust account, assets paid by the employer, investment return, orproceeds from the reinsurance from the captive insurance company.Additionally, based on the optimization module 640 information and theuser inputs 610, the management module 630 may be able to determine, forexample, that additional assets are necessary from the employer in sixmonths to ensure the trust is properly funded. Additionally, reports canbe generated related to paid benefits, or other parameters. The detailsof the interaction of these parameters are discussed below.

Additionally, as seen in FIG. 6, to allow a user to utilize theinformation calculated by the modules (e.g., the software program),outputs are displayed on a display 680 via a compiler 675. The compiler675 allows the computer 620 to use the output from several modules, forexample the accounting module 670 and optimization module 640, at thesame time. Since these parameters may be interconnected, it may, in someembodiments, be beneficial for a user to be able to view the informationsimultaneously. Of course, FIG. 6 is exemplary and several variations ofthe embodiment of FIG. 6 should be apparent to a person of ordinaryskill in the art.

Several variations for optimization, reporting, administration, trackingand managing will be apparent to a person of ordinary skill in the art.Generally, however, the list below illustrates several variables orassumptions that may be beneficial for the computer implemented system(or the method in general) of the present invention.

 (1) Year The number of years the software may calculate data for.  (2)Number of The starting number of participants. Lives May assume deathrates based on any Covered acceptable means. May also account for newemployees. Policy Accounting  (3) Insurance Face amounts are set for thepolicy Face to qualify as Life Insurance and to Amount determine whetherthe policy is treated as a Modified Endowment Contract (MEC) or not. (4) Premium Assets paid to trust to establish and fund the lifeinsurance contract and/ or the non-cancelable accident and healthinsurance.  (5) Number of Estimated number of deaths and/or Deaths/claims are computed based on any Claims acceptable means.  (6) DeathDeath benefits are actuarially Benefits/ determined by the expecteddeaths and Proceeds the insurance face amounts. of Claims Paid  (7)Loads Basis points charged to the policy.  (8) Surrenders The amount ofcash value that is withdrawn or surrendered. May also be a partialsurrender.  (9) Investment Expected investment return rate basedEarnings on any acceptable means. (10) End of Based on actuarialprojections. Year Cash Value (11) End of Based on actuarial projections.Year Basis (12) Policy Premium adjusted for death benefits Cash Flow andsurrenders. From the corporate point of view, this is the amount ofmoney the employer is spending on the policy or getting back from it.Captive Cash Flow (13) Direct The same as (4). Premium (14) ReinsuranceMortality risk is assumed to be Ceded reinsured. It assumes a percentageload by the reinsurance company. (15) Net Premium Direct premium lessreinsurance ceded. This is the net annual premium amount retained by thecaptive. (16) Total Death/ Death/Claim benefits are calculated Claimbased on the pre-determined group Benefits premium (4). (17) ReinsuranceGenerally equal to the benefits Recovery received from the reinsurer.(18) Net Death/ Total Death/Claim Benefits (16) less Claim ReinsuranceRecovery (17). Net Benefits Death/Claim Benefits may be paid from theCash Value. (19) Surrenders The same as (8). (20) Premium Premium tax iscalculated based on Tax the sliding scale. For example, Vermont captiveinsurance premium tax rates are applied to direct premiums. (21)Expenses Program administration expenses for this program. (22)Investable These are the assets generating Assets investment earnings.Beginning of year invested assets (24) plus annual net premium adjustedfor death/claim benefits (18), surrenders (19), expenses (21) and DACTax (30). (23) Investment Investment earnings based on any Earningsacceptable means. (24) Cash Tax Captive's annual income tax (46) Expenseadjusted for DAC Tax. (25) Beginning Prior year's End of Year Investedof Year Assets (25), $0 in year 1. Invested Assets (26) End of Beginningof Year Invested Assets Year (25) plus Investment Earnings (23) Investedand Net Premium (15), less Net Assets Death/Claim Benefits (18),Surrenders (19), Premium Tax (20), Expenses (21) and Cash Tax Expense(24). Deferred Acquisition Cost (DAC) (27) Current The lesser of a givenpercentage Year DAC of premiums and the captive expenses (premium taxand administration expenses). (28) Amortiza- DAC amortization. tion (29)Unamortized Prior year's Unamortized DAC (prior DAC year's 29) plusCurrent Year DAC (27) minus Amortization (28). (30) Deferred AccumulatedDAC payments that will be Tax Asset recovered through futureamortization. A percentage tax is applied to the Unamortized DAC (29).The Captive Income Statement section below represents the impact of thePolicy transaction on the Captive's Income Statement (31) Direct Thesame as (4). Premiums (32) Reinsurance The same as (14). Ceded (33) NetThe same as (15). Premiums (34) Investment The same as (23). Income (35)Gross Net Premiums (33) plus Investment Income Income (34). (36)Death/Claim The same as (6). Benefits Incurred (37) Reinsurance The sameas (17). Recoveries (38) Net Death/ The same as (18). Claim Benefits(39) Surrenders The same as (19). (40) Increase Equal to the annualchange in End of in Policy Year Cash Value (annual change in 10).Reserves (41) Total The total benefit expense paid by the Benefitcaptive; Sum of Net Death Benefits Expense (38), Surrenders (39),Increase in Policy Reserves (40). (42) Premium The same as (20). Tax(43) Other The same as (21). Expense (44) Total Sum of Total BenefitExpense (41), Expense Premium Tax (42), Other Expense (43). (45) PretaxGross Income (35) minus Total Expense Income (44). (46) Income Tax Apercentage tax that is applied to Pre-tax income (45). (47) Net IncomePretax Income (45) minus Income Tax (46). The Captive Balance Statementsection below represents the impact of the Policy transaction on theCaptive's Balance Sheet. (48) Investments Equal to the End of YearInvested Assets (26). (49) Unamortized Equal to the Deferred Tax Asset(30). DAC (50) Total Investments (48) plus Unamortized Assets DAC (49).(51) Liabilities Equal to the End of Year Cash Value (Policy (10).Reserves) (52) Capital Additional funds needed for capital. If captiveis already capitalized, no additional funds will be needed for capital.(53) Retained Net Income (47) plus prior year's Earnings RetainedEarnings (53) (54) Total Capital (52) plus Retained Earnings Shareholder(53). Equity (55) Total Liabi- Liabilities (Policy Reserves) (51) litiesand plus Total Shareholder Equity (54). Equity Financing/Alternative useof Assets The section below computes the oppurtunity cost of captivefunding. The cash that would have been used elsewhere, i.e., theemployer's other investments in the initial years, will be consolidatedunder the Life Insurance program. (56) Policy Cash The same as (12).Flow (57) Capitaliza- The same as (52). tion of Captive (58) P&C PremiumAmount of P&C premium that is Effected affected by the employee benefitsfunding. For example, IRS Revenue Ruling 2002-89 requires that 50% ofthe captive's business stem from unrelated parties (e.g. employeebenefits) for the remaining P&C premiums to be deductible. (59)Accumulated P&C reserves that can be used to P&C Deduc- determinedeductible amount. tion (60) Current P&C Annual change in theaccumulated Deduction P&C Deduction (annual change in 59). (61) P&CDeduc- Value of the accelerated tax tion Value deduction. A percentagetax rate applied to the Current P&C Deduction (60). (62) Net Cash Theamount that employer needs to Flow finance. Sum of Policy Cash FlowDifference (56), Capitalization (57) and P&C Deduction Value (61). (63)Beginning What a company owned policy (COP) of Year would be worth ifthe Plan Value continued to hold it. Prior year's Exchanged Beginning ofYear Value of Exchanged COP COP policy (prior year's 63) plus ExpectedEarnings (65). In year 1, COP Exchanged (64) is also included in theBeginning of Year Value Exchanged COP. (64) COP Expected value of theCOP assets Exchanged that will be transferred to the Policy program whenthe benefits are funded through the captive. (65) Expected Beginning ofYear Value Exchanged Earnings COP (63) earnings adjusted for the COPpolicy load (80 bp). (66) Beginning The assets that have not yet been ofYear sold to finance the policy. Prior Assets year's Beginning of YearAssets (66) plus prior year's Tax Effect minus prior year's assets sold.For year 1, this is the amount of current assets. (67) Asset The amountof assets the program Earnings would have had if the assets had not beentransferred to the Policy program. Earnings at an assumed rate on theassets available for investments, i.e., Beginning of Year Assets (66)adjusted for Assets Sold (70). (68) Tax Effect Percentage tax rateapplied to Asset Earnings (67). (69) Beginning Prior year's Asset Sold(prior of Year year's 70) plus prior year's Value Expected Earnings(prior year's Assets Sold 71) minus prior year's Tax Effect (prioryear's 72). (70) Assets Sold Sell assets when the Beginning of YearValue Assets Sold (69) is positive to cover the Net Cash Flow Difference(62) if COP Exchanged (64) alone is unable to pay out the Net Cash FlowDifference (62). (71) Expected Expected earnings at a determinedEarnings percentage on net assets investable into mutual funds in agiven year; i.e. percentage applied to Beginning of Year Value SERPMutual Funds Sold (69) plus Mutual Funds Sold (70). (72) Tax EffectPercentage tax on Expected Earnings (71). Loan/Repayment accounting.This section illustrates the impact of the Policy transaction on theloans of the employer. (73) Beginning When COP Exchanged (64) and Assetsof Year Sold (70) are not enough to meet Net Loan Cash Flow Difference(62), loans are Balance needed to cover the Net Cash Flow Difference(62). This amount is equal to the prior year's End of Year Loan Balance(prior year's 77). (74) (Borrowing)/ Net Cash Flow Difference (62) lessRepayment COP Exchanged (64), Mutual Funds Sold (70), other DebtIncurred, and Other Assets Sold. (75) Value of Interest on Beginning ofYear Loan Funds Balance (73) and (Borrowing)/Repay- ment (74). (76) TaxEffect Tax impact of loan interest. Value of Funds (75) times tax rate.(77) End of Beginning of Year Loan Balance (73) Year Loan adjusted foradditional loans, Balance interest and tax impact of interest; Sum ofBeginning of Year Loan Balance (73), (Borrowing)/Repayment (74) andValue of Funds (75), less Tax Effect (76). The Unconsolidated EarningsImpact (Employer) section below represents the impact of the Policytransaction on Employer's Income Statement. (78) Investment Equal toExpected Earnings (71) of Earnings Assets, which is the earnings if theassets would not have been sold. (79) Other Policy earnings offset byreserve Income earnings. Note: Other Income may not be subject to tax.Sum of Increase in Policy Reserves (40), Policy Cash Flow (56) andExpected Earnings (65) on the COP Exchanged. (80) Total InvestmentEarnings (78) plus Other Revenue Income (79). (81) Interest Interestexpense/credit on corporate Expense/ debt. Equal to Value of Funds(−75). Credit (82) Pretax Total Revenue (80) minus Interest IncomeExpense (81). (83) Tax Tax on Expected Earnings on (72) plus tax impactof the loan (76). (84) After-tax Pretax income (82) minus Tax (83).Income Generating book value while generating tax deductions. TheUnconsolidated Balance Sheet Impact (Employer) section below representsthe impact of the Policy transaction on Employer's Balance Sheet. (85)Cash and Reduction in investments due to the Investments sale of assets.Equal to the following year's Beginning of Year Value SERP assets Sold(the following year's 69). (86) Other Increase in the Life InsuranceAssets Assets and/or Non-Cancelable Accident and Health InsuranceAssets. Liabilities (Policy Reserve) (51) plus the following year'sBeginning of Year Value Exchanged COP (the following year's 63). (87)Deferred If employer carries a Deferred Tax Tax Asset Asset which theywould recognize when claims are paid in the future. That deduction maynow be accelerated under the captive program and will be converted intocash. Accumulation of P&C Deduction Value (accumulation of 61). (88)Investments Accumulation of the Capitalization of in Captive the Captive(accumulation of 57). If the captive is already capitalized, there is noinitial capital and subsequent accumulation of capital. (89) Total Sumof Cash and Investments (85), Assets Other Assets (86), Deferred TaxAsset (87) and Investments in Captive (88). (90) Liabili- Equal to theEnd of Year Loan Balance ties/Loans (77). (91) Shareholder Accumulationof After-tax Income Equity (accumulation of 84). (92) Total Liabi-Liabilities/Loans (90) plus lities and Shareholder Equity (91). EquityConsolidated Impact (93) Net Income Consolidated Net Income of thecaptive and employer. Captive's Net Income (47) plus Employer'sAfter-tax Income (84). (94) Shareholder Consolidated shareholder equityof Equity the captive and Employer. Captive's Shareholder Equity (54)plus Employer's Shareholder Equity (91).

In embodiments, any combination of these variables, and others that willbe apparent to a person skilled in the art, can be used to establish,optimize, report, administer, track, and manage the funding system ofthe present invention. Additionally, some of the above variables may beinput by a user, others may be internally determined based on severalfactors. In one embodiment, the effective tax rates may be determinedaccording to current state and federal regulations. In otherembodiments, a user may be able to input a percentage for the same taxrates. Additionally, as would be understood by a person skilled in theart, some of these variables may be determined by complex statisticalmodels. For example, the death rate may be a complex statisticaldistribution or a simple rate. For some employers, it may be sufficientto indicate that, for example, a death rate of 2 people per year.However, in other embodiments, the employer may desire a particulardistribution of the deaths. Several models may be used, in thisembodiment, based on the employer's needs. Additionally, all thevariables presented above may not be applicable to both life insurancepolicies and non-cancelable accident and health insurance policies. Theapplicability of these variables should be apparent to a person skilledin the art.

The embodiments described herein are intended to be illustrative of thisinvention. As will be recognized by those of ordinary skill in the art,various modifications and changes can be made to these embodiments andsuch variations and modifications would remain within the spirit andscope of the invention defined in the appended claims and theirequivalents. Additional advantages and modifications will readily occurto those of ordinary skill in the art. Therefore, the invention in itsbroader aspects is not limited to the specific details andrepresentative embodiments shown and described herein.

1. A computer implemented method for funding benefits, said computerimplemented method comprising: electronically accepting, by a computer,inputs related to specific employer information; electronicallydetermining, by a computer, an amount of funding to provide to anemployer or employee owned trust account; electronically calculating, bya computer, what portion of said funding to use to purchase at least onelife insurance contract or at least one non-cancelable accident andhealth insurance contract; electronically determining, by a computer andbased, at least, on said benefits liability of said employer, assets ofsaid employer, and projected future benefits liabilities and assets ofsaid employer, whether to purchase said at least one life insurancecontract or non-cancelable accident and health insurance contract from anon-captive insurance company or a captive insurance company; andelectronically determining, by a computer, what portion of said at leastone life insurance contract or non-cancelable accident and healthinsurance contract should be reinsured by said captive insurance companyif said at least one life insurance contract or non-cancelable accidentand health insurance contract is purchased from said non-captiveinsurance company; wherein said trust is the beneficiary of said atleast one life insurance contract or non-cancelable accident and healthinsurance contract; and wherein said captive insurance company is aninsurance company that is at least partially owned by said employer andinsures a risk of said employer who is not solely in the business ofinsurance.
 2. The computer implemented method of claim 1, wherein saidat least one life insurance policy or non-cancelable accident and healthinsurance contract is purchased from said non-captive life insurancecompany.
 3. The computer implemented method of claim 1, furthercomprising: estimating benefit amounts to be paid or reimbursed by saidemployer or said trust.
 4. The computer implemented method of claim 1,further comprising, determining what commercially available vehiclessaid at least one of said trust and said captive insurance companyinvests assets in to generate additional assets.
 5. The computerimplemented method of claim 1, further comprising determining that saidcaptive insurance company invests at least a portion of assets insecurities of said employer.
 6. The computer implemented method of claim5, wherein said securities is short term commercial paper of saidemployer.
 7. The computer implemented method of claim 1, furthercomprising, determining whether said captive insurance company should bepartially owned by said employer or wholly owned by said employer. 8.The computer implemented method of claim 1, further comprising,determining whether said trust should be a Voluntary Employee BenefitAssociation Trust.
 9. The computer implemented method of claim 1,further comprising, determining whether said trust should be a RabbiTrust.
 10. The computer implemented method of claim 1, furthercomprising, determining which individuals receiving benefits from saidemployer should be an insured on said at least one life insurancecontract or non-cancelable accident and health insurance contract. 11.The computer implemented method of claim 1, further comprising,configuring said at least one life insurance contract or non-cancelableaccident and health insurance contract to maximize a cash value of saidat least one life insurance contract or non-cancelable accident andhealth insurance contract for a predetermined period of time, or tooptimize at least one of a premium, a liability or another variable inaccordance with an employer's needs.
 12. A computer system for fundingbenefits, said computer system comprising: input means for acceptinguser inputs related to specific employer information; calculating meansfor determining an amount of funding to provide to a trust account;calculating means for determining what portion of said funding to use topurchase at least one life insurance contract or non-cancelable accidentand health insurance contract to optimize a tax benefit to saidemployer; determining means for determining, based, at least on saidbenefits liability of said employer, assets of said employer, andprojected future benefits liabilities and assets of said employer,whether to purchase said at least one life insurance contract ornon-cancelable accident and health insurance contract from a non-captiveinsurance company or a captive insurance company; and determining meansfor determining what portion of said at least one life insurancecontract or non-cancelable accident and health insurance contract shouldbe reinsured by said captive insurance company if said at least one lifeinsurance contract or non-cancelable accident and health insurancecontract is purchased from said non-captive insurance company; whereinsaid trust is the beneficiary of said at least one life insurancecontract or non-cancelable accident and health insurance contract; andwherein said captive insurance company is an insurance company that isat least partially owned by said employer and insures a risk of saidemployer who is not solely in the business of insurance.
 13. Thecomputer system of claim 12, wherein said determining means determinesto purchase said at least one life insurance contract or non-cancelableaccident and health insurance contract from said non-captive lifeinsurance company.
 14. The computer system of claim 12, furthercomprising: estimating means for estimating benefit amounts to be paidor reimbursed by said employer or said trust.
 15. The computer system ofclaim 12, further comprising, determining means for determining whatcommercially available vehicles said at least one of said trust and saidcaptive insurance company invests assets in to generate additionalassets.
 16. The computer system of claim 12, further comprisingdetermining means for determining an amount that said captive insurancecompany invests in securities of said employer.
 17. The computer systemof claim 16, wherein said securities is short term commercial paper ofsaid employer.
 18. The computer system of claim 12, further comprising,determining means for determining whether said captive insurance companyshould be partially owned by said employer or wholly owned by saidemployer.
 19. The computer system of claim 12, further comprising,determining means for determining whether said trust should be aVoluntary Employee Benefit Association Trust or a Rabbi Trust.
 20. Thecomputer system of claim 12, further comprising, selecting means forselecting which individuals receiving benefits from said employer shouldbe an insured on said at least one life insurance contract ornon-cancelable accident and health insurance contract.
 21. The computersystem of claim 12, further comprising, determining means forconfiguring said at least one life insurance contract or non-cancelableaccident and health insurance contract to maximize a cash value of saidat least one life insurance contract or non-cancelable accident andhealth insurance contract for a predetermined period of time, or tooptimize at least one of a premium, a liability or another variable inaccordance with an employer's needs.
 22. A system for funding benefits,said system comprising: a benefits provider computer configured tocommunicate with at least one of an employer owned trust account oremployee owned trust account, a non-captive insurance company, and acaptive insurance company; wherein said benefits provider computer isconfigured to perform at least the following steps: providing funding tosaid trust account, said amount of funding having been determined bysaid benefits provider; instructing said trust account as to whatportion of said funding to use to purchase at least one life insurancecontract or at least one non-cancelable accident and health insurancecontract, said portion being determined based, at least on said benefitsliability of said employer, assets of said employer, and projectedfuture benefits liabilities and assets of said employer; instructingsaid trust account as to whether to purchase said at least one lifeinsurance contract or non-cancelable accident and health insurancecontract from said non-captive insurance company or said captiveinsurance company; and instructing said trust account as to what portionof said at least one life insurance contract or non-cancelable accidentand health insurance contract should be reinsured by said captiveinsurance company if said at least one life insurance contract ornon-cancelable accident and health insurance contract is purchased fromsaid non-captive insurance company; wherein said trust is thebeneficiary of said at least one life insurance contract ornon-cancelable accident and health insurance contract; and wherein saidcaptive insurance company is an insurance company that is at leastpartially owned by said employer and insures a risk of said employer whois not solely in the business of insurance.
 23. The system of claim 22,wherein said benefits provider instructs said trust to purchase said atleast one life insurance contract or non-cancelable accident and healthinsurance contract from said non-captive life insurance company.
 24. Thesystem of claim 22, wherein said benefits provider is an employer. 25.The system of claim 22, wherein said benefits provider instructs saidtrust and said captive insurance company as to what commerciallyavailable vehicles said at least one of said trust and said captiveinsurance company invests assets in to generate additional assets. 26.The system of claim 22, wherein said benefits provider instructs saidcaptive insurance company as to what amount said captive insurancecompany invests in securities of said employer.
 27. The system of claim26, wherein said securities is short term commercial paper of saidbenefits provider.
 28. The system of claim 22, wherein said captiveinsurance company is formed by said benefits provider and is eitherpartially owned by said benefits provider or wholly owned by saidbenefits provider.
 29. The system of claim 22, wherein said trust is oneof a Voluntary Employee Benefit Association Trust or a Rabbi Trust. 30.The system of claim 22, wherein said benefits provider instructs saidtrust as to which individuals receiving benefits from said benefitsprovider should be an insured on said at least one life insurancecontract or non-cancelable accident and health insurance contract. 31.The computer system of claim 22, wherein said at least one lifeinsurance contract or non-cancelable accident and health insurancecontract is configured to maximize a cash value of said at least onelife insurance contract or non-cancelable accident and health insurancecontract for a predetermined period of time, or to optimize at least oneof a premium, a liability or another variable in accordance with saidbenefits provider's needs.